RBI's new norms to rehabilitate 'sick' MSE units

The Reserve Bank of India (RBI) on Thursday came out with a net set of guidelines to rehabilitate sick Micro & Small Enterprises (MSEs), basically to help scheduled banks for identifying a unit as sick, early detection of incipient sickness and to lay down procedures to be adopted by it before declaring (the unit) as unviable.

Even as the recent global slowdown had adversely affected the Indian economy in general, MSEs suffered the most from discontinuity of business, which they normally are not in a position to bear and become sick immediately, RBI noted.

The important changes brought out in the new guidelines based on the recommendations of the Working Group headed by K C Chakrabarty, a former Chairman and Managing Director of Punjab National Bank, envisages a change in the definition of sickness and a procedure for assessing the viability of sick MSE units, with a view to hasten the process of identification of an MSE unit as sick.

Under the new guidelines, an MSE is considered ‘sick’ when any of the borrowal account of the enterprise remains NPA (non-performing asset) for three months or more. Or there is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth. Also, the stipulation that the unit should have been in commercial production for at least two years has been removed.

In contrast, under the old guidelines, an MSE unit is considered sick only if any of the borrowal accounts of the unit remains substandard for more than six months.

Simply put, principal or interest, in respect of any of its borrowal accounts has remained overdue for a period exceeding one year. The requirement of overdue period exceeding one year will remain unchanged even if the present period for classification of an account as sub-standard is reduced in due course.